Question 1

Everything else held constant,if a factor increases the demand for ________ goods relative to ________ goods,the domestic currency will appreciate.

Accepted Answer

When the demand for domestic goods increases relative to foreign goods, there will be stronger demand for the domestic currency to purchase those goods, leading to an appreciation of the domestic currency. So, if a factor increases the demand for domestic goods relative to foreign goods, the domestic currency will appreciate.

Question 2

Everything else held constant,increased demand for a country's exports causes its currency to ________ in the long run,while increased demand for imports causes its currency to ________.

Accepted Answer

Increased demand for a country's exports means that its exports will be in higher demand in foreign countries, which means that foreign buyers will have to exchange their currency for the country's currency in order to make the purchase. This increased demand for the country's currency will cause its value to appreciate in the long run. On the other hand, increased demand for imports means that the country will need to exchange its currency for foreign currency in order to make purchases from other countries. This increased supply of the country's currency in foreign exchange markets will cause its value to depreciate in the long run.

Question 3

If the inflation rate in the United States is higher than that in Mexico and productivity is growing at a slower rate in the United States than in Mexico,then,in the long run,________,everything else held constant.

Accepted Answer

Higher inflation and lower productivity growth in the U.S. compared to Mexico would, in the long run, lead to the appreciation of the Mexican peso relative to the U.S. dollar, as Mexico's goods become relatively cheaper and more competitive.

Question 4

When Americans or foreigners expect the return on ________ assets to be high relative to the return on ________ assets,there is a ________ demand for dollar assets,everything else held constant.

Accepted Answer

When the return on dollar assets is expected to be higher than the return on foreign assets, there is a higher demand for dollar assets. This is because investors will want to invest in the currency/asset that provides them with better returns. Therefore, choice B is the correct answer as it states that there is a higher demand for dollar assets when the return on dollar assets is expected to be higher than the return on foreign assets.

Question 5

If the Brazilian demand for American exports rises at the same time that U.S.productivity rises relative to Brazilian productivity,then,in the long run,________,everything else held constant.

Accepted Answer

If Brazilian demand for American exports rises, then the demand for dollars will also rise. However, if US productivity rises relative to Brazilian productivity, this means that US goods will become relatively cheaper than Brazilian goods. As a result, demand for Brazilian real will decrease, causing a depreciation relative to the US dollar. Therefore, the Brazilian real will depreciate relative to the US dollar in the long run, everything else held constant.

Question 6

The ________ suggests that the most important factor affecting the demand for domestic and foreign assets is the expected return on domestic assets relative to foreign assets.

Accepted Answer

The theory of portfolio choice suggests that investors choose their portfolio of assets based on the expected return of domestic assets relative to foreign assets, among other factors like risk. This theory emphasizes the importance of expected returns in determining the demand for different types of assets across countries.

Question 7

If,in retaliation for "unfair" trade practices,Congress imposes a 30 percent tariff on Japanese DVD recorders,but at the same time,U.S.demand for Japanese goods increases,then,in the long run,________,everything else held constant.

Accepted Answer

The imposition of a tariff on Japanese DVD recorders by Congress would increase the price of those goods for U.S. consumers, reducing demand for Japanese products in the short run. However, if U.S. demand for Japanese goods increases in the long run despite the tariff, the demand for Japanese yen would increase as well, which could lead to an appreciation of the yen relative to the U.S. dollar. On the other hand, it is also possible that the Japanese government may respond to the U.S. tariff by implementing countermeasures that reduce demand for U.S. goods in Japan, which could lead to a depreciation of the yen relative to the U.S. dollar. Therefore, the answer is D, as the effect on the exchange rate is uncertain and could go either way depending on the specifics of the situation.

Question 8

Lower tariffs and quotas cause a country's currency to ________ in the ________ run,everything else held constant.

Accepted Answer

The answer of Lower tariffs and quotas cause a country's...

Question 9

When Americans or foreigners expect the return on ________ assets to be high relative to the return on ________ assets,there is a higher demand for dollar assets and a correspondingly lower demand for foreign assets.

Accepted Answer

When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets, there is a higher demand for dollar assets and a correspondingly lower demand for foreign assets. Therefore, the higher demand will lead to an appreciation of the dollar and a decrease in demand for foreign currency.

Question 10

Everything else held constant,increased demand for a country's ________ causes its currency to appreciate in the long run,while increased demand for ________ causes its currency to depreciate.

Accepted Answer

Increased demand for a country's exports will lead to an increase in demand for its currency in order to purchase those exports. This increased demand for currency will cause its value to appreciate. On the other hand, increased demand for imports requires more of the country's currency to be sold in order to purchase those imports, which leads to a decrease in the currency's value and currency depreciation.

Question 11

Everything else held constant,if a factor decreases the demand for ________ goods relative to ________ goods,the domestic currency will depreciate.

Accepted Answer

When a factor decreases the demand for domestic goods relative to foreign goods, it means that consumers are more likely to purchase foreign goods than domestic goods. This creates a greater demand for foreign currency to purchase these goods, which leads to a depreciation of the domestic currency. Therefore, the correct choice is D, as a decrease in demand for domestic goods relative to foreign goods will cause the domestic currency to depreciate.

Question 12

Anything that increases the demand for foreign goods relative to domestic goods tends to ________ the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is ________,everything else held constant.

Accepted Answer

When the demand for foreign goods increases relative to domestic goods, there is a higher demand for foreign currency to make those purchases, which results in a decrease in demand for the domestic currency. This leads to a depreciation of the domestic currency. Additionally, if the value of the domestic currency remains higher, then it will make domestic goods more expensive for foreign consumers, which could cause a decrease in demand for them. Therefore, the domestic currency needs to depreciate to maintain competitiveness in the global market.

Question 13

Higher tariffs and quotas cause a country's currency to ________ in the ________ run,everything else held constant.

Accepted Answer

The answer of Higher tariffs and quotas cause a country's...

Question 14

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is

Accepted Answer

Portfolio choice theory states that investors choose assets based on their expected return relative to their risk. Therefore, the expected return on domestic and foreign assets relative to one another is the most important factor affecting demand for these assets.

Question 15

Explain the law of one price and the theory of purchasing power parity.Why doesn't purchasing power parity explain all exchange rate movements in the short run? What factors determine long-run exchange rates?

Accepted Answer

The answer of Explain the law of one price and...

Question 16

An increase in productivity in a country will cause its currency to ________ because it can produce goods at a ________ price,everything else held constant.

Accepted Answer

An increase in productivity allows a country to produce goods at a lower cost, making its products more competitive internationally. This typically leads to an increase in exports, which can cause the country's currency to appreciate due to higher demand for its currency to purchase its goods.

Question 17

As the relative expected return on dollar assets increases,foreigners will want to hold more ________ assets and less ________ assets,everything else held constant.

Accepted Answer

As the expected return on dollar assets increases, foreigners will want to hold more dollar assets as they become more attractive relative to foreign assets. This means they will hold less foreign assets, everything else held constant.

Question 18

When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets,there is a ________ demand for dollar assets and a correspondingly ________ demand for foreign assets.

Accepted Answer

When there is an expectation for higher returns on dollar assets compared to foreign assets, there will be a higher demand for dollar assets and a lower demand for foreign assets as investors seek to maximize their returns.

Question 19

If the U.S.Congress imposes a quota on imports of Japanese cars due to claims of "unfair" trade practices,and Japanese demand for American exports increases at the same time,then,in the long run ________,everything else held constant.

Accepted Answer

The answer of If the U.S.Congress imposes a quota on...

Question 20

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is the ________ on these assets relative to one another.

Accepted Answer

The theory of portfolio choice states that investors make investment decisions based on the expected returns and risks associated with different assets. Therefore, the most important factor affecting the demand for domestic and foreign assets is the expected return on these assets relative to one another. The higher the expected return, the more demand an asset will have, all else being equal.

Quiz 20: The Foreign Exchange Market

Everything else held constant,if a factor increases the demand for goods relative to goods,the domestic currency will appreciate.

Everything else held constant,increased demand for a country's exports causes its currency to in the long run,while increased demand for imports causes its currency to .

If the inflation rate in the United States is higher than that in Mexico and productivity is growing at a slower rate in the United States than in Mexico,then,in the long run,________,everything else held constant.

When Americans or foreigners expect the return on assets to be high relative to the return on assets,there is a demand for dollar assets,everything else held constant.

If the Brazilian demand for American exports rises at the same time that U.S.productivity rises relative to Brazilian productivity,then,in the long run,________,everything else held constant.

The ________ suggests that the most important factor affecting the demand for domestic and foreign assets is the expected return on domestic assets relative to foreign assets.

If,in retaliation for "unfair" trade practices,Congress imposes a 30 percent tariff on Japanese DVD recorders,but at the same time,U.S.demand for Japanese goods increases,then,in the long run,________,everything else held constant.

Lower tariffs and quotas cause a country's currency to in the run,everything else held constant.

When Americans or foreigners expect the return on assets to be high relative to the return on assets,there is a higher demand for dollar assets and a correspondingly lower demand for foreign assets.

Everything else held constant,increased demand for a country's causes its currency to appreciate in the long run,while increased demand for causes its currency to depreciate.

Everything else held constant,if a factor decreases the demand for goods relative to goods,the domestic currency will depreciate.

Anything that increases the demand for foreign goods relative to domestic goods tends to the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is ,everything else held constant.

Higher tariffs and quotas cause a country's currency to in the run,everything else held constant.

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is

Explain the law of one price and the theory of purchasing power parity.Why doesn't purchasing power parity explain all exchange rate movements in the short run? What factors determine long-run exchange rates?

An increase in productivity in a country will cause its currency to because it can produce goods at a price,everything else held constant.

As the relative expected return on dollar assets increases,foreigners will want to hold more assets and less assets,everything else held constant.

When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets,there is a demand for dollar assets and a correspondingly demand for foreign assets.

If the U.S.Congress imposes a quota on imports of Japanese cars due to claims of "unfair" trade practices,and Japanese demand for American exports increases at the same time,then,in the long run ________,everything else held constant.

The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is the ________ on these assets relative to one another.